No. 0006-en · The most expensive year in LEGO's history · 1 of 3
Work out LEGO's profit margin for 2004, before and after the clean-up. What does the difference tell you about the core?
After the clean-up: −1,122 ÷ 6,704 × 100 = −16.7%. Before the clean-up: 103 ÷ 6,704 × 100 = 1.5%. The business itself made a small profit. It was the write-down of factories and machines (DKK 723 million) and lay-offs and closures (DKK 502 million) that turned the year into a large loss. The core was sick but alive.
In the study: Key figure 1 of 7 · Your verdict
No. 0006-en · The most expensive year in LEGO's history · 2 of 3
Work out return on assets and the cost of debt. Is the interest margin positive or negative, and what does that mean for the owners?
ROA = −1,122 ÷ 8,089 × 100 = −13.9%. Debt = 8,089 − 2,948 = DKK 5,141 million. Cost of debt = 219 ÷ 5,141 × 100 = 4.3%. Interest margin = −13.9 − 4.3 = −18.1 percentage points (−18.2 if you round first). It is negative: the assets earn less than the loans cost, so every borrowed krone makes the owners' loss bigger. With gearing of 1.74, return on equity was −1,931 ÷ 2,948 × 100 = −65.5%.
In the study: Key figures 3, 4 and 5 of 7
No. 0006-en · The most expensive year in LEGO's history · 3 of 3
The current ratio looked healthy. Work it out and explain why it can fool you.
3,615 ÷ 1,473 × 100 = 245%, well above the 150% rule of thumb. But the figure is a snapshot taken on New Year's Eve, and only DKK 312 million was cash. The rest was stock, receivables and buildings for sale. Liquidity and the owners' loan bought time; only a positive profit margin could make the rescue last.
In the study: Key figure 7 of 7 · Your move
No. 0006-en · The most expensive year in LEGO's history
Well done. Now the class plays.
Start a class league, share the link, and see who in the class reads a company best.